FCA aims to help more people such as first-time buyers to access mortgages

The regulator also said that adding follow-on mortgage products, such as a retirement interest-only mortgage or a regulated lifetime mortgage as examples of a credible repayment strategy could allow more underserved customers to access interest-only and part interest-only and part repayment mortgages “in a safe way”.

It said this would also “better reflect the realities of options a consumer may have as they come closer to the end of their interest-only mortgage term”.

The consultation document said that, with 43% of working age people projected to be under-saving for their retirement, better access to the housing wealth that people have built up could be key to helping people achieve their financial goals in later life.

The regulator is also proposing to remove guidance which would mean affordability for joint retirement interest-only mortgage applications are assessed in the same way as for standard joint mortgages – in that firms would not be obliged to always consider a sole borrower’s ability to afford the mortgage if the other borrower dies.

Firms would still be able to consider any future income the surviving party will receive, such as spousal pension.

The consultation document said: “We know from our product sales data that arrears in retirement interest-only mortgages are extremely low, with less than 1% being in arrears.”

The FCA also said it wants to reduce barriers for lenders to offer flexible repayments for people with variable income, such as the self-employed, and lend to those paid in foreign currency.

It also wants lenders to assess affordability based on a person’s full and current situation, rather than automatically excluding people because of minor or past credit history issues.

The consultation document said: “Life events (for example temporary job loss) can drive credit impairment, and consumers may recover faster than some policies reflect.

“Reliance on historic indicators may not fully reflect current circumstances.”

David Geale, executive director for payments and digital finance at the FCA, said: “We’re living longer and how many people work has changed.

“Our mortgage rules need to keep pace so those who can afford to repay can borrow.

“Stronger protections mean we can now safely widen access to mortgage borrowing for those that may be underserved.”

The FCA oversees the Consumer Duty, which requires financial firms to put customers at the heart of what they do, including when designing products and communicating with customers.

The regulator said its proposals build on the duty – keeping appropriate safeguards in place, including supporting people in understanding their options.

As part of gathering feedback on the proposals, the FCA is using an online tool to hear directly from people about their experiences of the mortgage market, while also considering feedback from firms and others.

The FCA wants to hear responses to its consultation by July 28.

Sarah Coles, head of personal finance at AJ Bell, said: “Developing products to better suit people’s lives makes perfect sense.”

She added: “But mortgages are just one part of the picture.

“A healthy housing market also needs enough affordable properties, plus tax rules that don’t distort buyer behaviour and put people off.

“The flow of first-time buyers also depends on people being able to build healthy deposits.

“This can be a huge challenge when they’re also having to cover the cost of sky-high rents.”

Karina Hutchins, director of mortgages at UK Finance, said: “UK Finance welcomes the proposed changes to the mortgage rules.

“These proposals update existing guidance and give lenders greater flexibility to support customers’ evolving needs.

“They also support the Government’s pro-growth agenda by removing barriers to finance and helping more prospective home buyers on to the property ladder.”

Matt Smith, a mortgage expert at Rightmove, described the proposals as “positive”, adding: “Their impact will depend on how simple they are for lenders and brokers to implement in practice.”

David Fell, lead analyst at Hamptons, said some aspiring buyers, particularly those with non-standard employment terms, have been kept renting “for much longer”.